Hotel and tourism organisations have been among the first to sign up for the wage subsidy in this new Level 4/3 lockdown, and they say they will need targeted government funding to survive.
One of NZ’s biggest hotel groups has issued a notice to its investors, warning of trouble ahead.
Millennium & Copthorne Hotels says the company has already had more than 9000 night stays cancelled this lockdown, affecting profitability, and it is applying for the wage subsidy for staff at all its closed properties.
All its owned and operated hotels, with the exception of two operating as Managed Isolation facilities (the Grand Millennium and M Social in Auckland) have been closed since New Zealand went to alert Level 4 on August 17.
“Cancellations received to date exceed 9000 nights across all of our properties,” it has notified the NZX. “The current estimated revenue that has been lost due to these cancellations does affect the profitability of MCK’s hotel operations but is not currently expected to affect MCK’s group financial position in a material way. We will continue to keep the market updated.”
The company said it had applied for the wage subsidy for employees at the hotels and corporate offices that are now closed – thought to still number more than 1000 despite last year’s lay-offs.
In February, Millennium & Copthorne Hotels posted a small profit of $1.9 million from its hotel operations – but that was the last good news for the company and its investors. That was followed by lockdowns in Auckland, then Wellington, and now the whole country.
Even if the South Island and lower North Island are allowed back to Level 2 in a week or two, there will still be little business for the company’s hotels with Aucklanders unable to travel for business or pleasure.
“The change of Alert Levels for the areas of New Zealand south of Auckland and Northland effective this week will not allow our hotels outside of those areas to reopen except for very limited essential services business,” the company says.
The past 18 months have been a sickening rollercoaster ride for the accommodation sector. Many businesses were tipped from record highs into last year’s Level 4 lockdown. Some laid off hundreds of staff – then struggled to hire them back again as the economy recovered unexpectedly through spring and summer.
Now, with Delta first stemming the flow of Australian tourists, and then domestic travellers, industry leaders warn the sector will need targeted government support to survive.
Smaller hotel chains including Scenic, Naumi and Autolodge have already had their wage subsidies approved, as have tourism operators including Hobbiton, Skyline Skyrides and Bungy NZ. The Nando’s and Burger Fuel fast food chains are also claiming the subsidy.
Les Morgan, chief operating officer of the New Zealand-owned Sudima Hotel group, said his company hoped to get by without the wage subsidy but, ultimately, the whole industry would need targeted support to recover from this second hit.
He said he had been in tears last year as he broke the news to staff at one hotel after another, that their jobs were gone. He remembered, in particular, crying as he addressed a meeting of about 50 staff at Sudima Rotorua at the end of April 2020 – but an older woman at the back of the room had stood up and said, “Les, we don’t blame you”.
He was forced to put that hotel into hibernation.
Extraordinarily, a month later he had been watching a ministerial press conference on TV, and the Minister announced MBIE and the NZ Defence Force would be opening up a new MIQ facility – at Sudima Rotorua. Nobody had actually contacted the company and told them, he said.
He and his remaining team phoned around frantically and within 24 hours, they were able to open again as a Managed Isolation facility, with some of the same staff back again.
The sector actually found itself in the surprising position a few months ago that it was struggling to fill vacancies; Accor Hotels was recruiting 1000 roles across New Zealand, Australia and the Pacific.
Chris Roberts, the chief executive of sector group Tourism Industry Aotearoa, said hotel room occupancy had recovered to 64 percent this year, still well below the pre-Covid averages of 70-90 percent, but better than expected. Before lockdown, hotels had worked to find ways to operate that at least allowed them to break even.
“That’s not possible under Level 4 or Level 3,” he said. “This latest lockdown is another blow. National hotel occupancy is now in single figures.”
Regions like Queenstown had worked hard to recruit staff for the winter season, and now had no work for them. Most were doing their best to hang on to these staff, as they would need them when the South Island eventually gets back to Level 2. “They will definitely be needed in 2022, if international visitors gradually return.”
Last year, more than 95 percent of Tourism Industry Aotearoa members applied for the wage subsidy, and Roberts expected many would apply again. “We understand it is difficult to apply for the wage subsidy if you are a hotel chain with an MIQ property – because you have to show a 40 percent decline in revenue across your business. You can’t do it hotel by hotel.”
Last year there was criticism of companies that recovered enough to report profits, but did not return the wage subsidies. Roberts didn’t think that risk would deter businesses from applying again this year.
“I don’t think hotels will be nervous about a public reaction – they are genuinely using the subsidy to keep staff paid, who otherwise would likely lose their jobs.”
At the Hotel Council Aotearoa, strategic director James Doolan said it was “absolutely appropriate” that hotels made use of the Government’s wage subsidy scheme.
“In fact, if the Government truly values our tourism sector and wants to attract back high value tourists once borders reopen, the scheme should be significantly expanded so that hotels can draw on it for longer periods to offset massive losses since borders first closed,” he added.
To claim the wage subsidy, businesses were required to show a 40 percent fall in revenue in lockdown – but in fact, hotels’ revenues had been down more 40 percent ever since March 2020.
“Few sectors have been harder hit by border closures than our international-standard hotels. It’s beyond time for Government to prioritise a fair and reasonable scheme that helps the hotel sector retain valuable industry employees and keep physical assets fully maintained. Government has provided debt support for Air New Zealand and will no doubt inject equity soon – why is there no sector-specific support for hotels?”
The hotels had forecast all this, Doolan said, and explained it repeatedly to central government and local authorities. Now ministers needed to step up: “It’s time for them to genuinely engage with the hotel sector to properly understand the ongoing impact of shutting out all international travellers for 530-plus days and counting.
“We need the sort of support routinely offered to the hotel sector by governments overseas. Tourism used to account for 20 percent of New Zealand’s exports and all New Zealanders should be worried now about the shape of our long-term recovery.”
This week, Tourism Minister Stuart Nash announced new business support for tourism operators in five South Island regions: Fiordland/Southland, Queenstown Lakes, Mackenzie, Westland and Kaikoura. This would include professional one-to-one support and tailored advice to help businesses adjust to the impact of Covid-19, and further grants to help put that advice and planning into action.
“We are in a strong position to continue backing jobs and businesses to provide certainty in challenging times,” Nash said. “As always, the best economic response is a strong health response.”
Businesses could now apply for help under two initiatives from the $200 million Tourism Communities support plan announced in May, he said, and with South Island dropping to alert Level 3, business operators could now access their premises to prepare for contactless opening, including public health requirements.
“Higher Alert Levels are a reminder that this sector of our economy remains vulnerable to the impacts of the global pandemic, especially remote South Island regions that relied more heavily on foreign tourists than other areas.”
But opposition tourism spokesperson Todd McClay was scathing, saying Nash was just re-announcing old money and providing nothing new for struggling tourism operators.
“Tourism businesses cannot open their doors in any part of New Zealand today,” he said. “The Government should focus on getting New Zealanders vaccinated so we can return to an environment where tourism is thriving. New Zealand’s position at the back of the vaccination queue is hurting our tourism industry.”